Archive for March, 2010

Micro-moneylenders who profit from borrowers in southern India are undermining the principles of microfinance

The Guardian, Comment is Free. Published 24 March 2010.

India is a land of entrepreneurs. From tech-savvy businessmen to street barbers, the country is full of people who can identify opportunities and use them to their advantage. The unorganised “micro-moneylenders” in the southern state of Andhra Pradesh are no exception.

To illustrate the point, let us take the example of a hypothetical village in Andhra. As with most fertile villages in the region, MFIs (microfinance institutions) have a strong presence in the area. For years now, they have been lending small sums of money to women in the village, purportedly to help them jumpstart micro-businesses. The MFIs send staff to collect weekly loan instalments, which they do in early morning centre meetings. In these meetings, 20-40 customers gather and repay their instalments together, and if somebody cannot pay, the others cover for her. (more…)

Buying milk in Mumbai is so asy, it’s absurd. The `kirana’ shop only has Amul Shakti when you prefer Taaza? No problem, the shopkeeper can probably source your preferred milk from a nearby store. Don’t feel like making the long 200-metre trek to the shop? No problem, the shopkeeper will probably deliver your Rs 35 package to your doorstep. Don’t have the Rs 35 on hand? No problem, the shopkeeper will probably look you in the eyes and offer credit, with the unspoken commitment that you will repay within 24 hours.

After living in Mumbai for nearly four years, I am still amazed at how easily credit is extended and taken. I’m not talking about the credit used to purchase houses and automobiles. Nor am I talking about Mohammad Yunus- style microcredit, in which women are extended loans to jump start microbusinesses. I’m talking about informal micromini-credit, better known as the casual “no worries, pay me later” attitude displayed by many local business people. (more…)